Nanobody (Nb) is a novel type of antibody discovered in the serum of Camelidae. It is characterized by its small size, high specificity, stability, and ease of preparation. Nanobodies exhibit the ability to identify hidden epitopes and have diverse applications across various fields. This review aims to introduce three key stages in the screening and optimization of nanobodies, including nanobody library construction, in vitro surface display, and affinity maturation. We provide a brief description of preparation and characteristics of natural, immunological, and semi-synthetic/synthetic libraries. Additionally, we systematically explain eight in vitro display methods, including phage display, yeast display, bacterial display, ribosome display/mRNA display, and eukaryotic cell display. Furthermore, we discuss the application of yeast two-hybrid system high-throughput sequencing and mass spectrometry identification. A thorough analysis of their advantages and limitations is presented in this protocols. Finally, we summarize the platforms for in vitro or computer-aided affinity maturation techniques aimed at enhancing the functional stability of nanobodies. Consequently, this review provides a comprehensive approach to the integrated utilization of various technologies for the rapid development of stable, reliable, and specific nanobody-based drugs or diagnostic agents.